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07/12/2016

Study: EU countries ‘not interested’ in the Commission’s economic recommendations

Euro & Finance

Study: EU countries ‘not interested’ in the Commission’s economic recommendations

Anti-austerity protesters. Brussels, March 2013. [Elisa M/Flickr]

Only 18% of the European Commission’s recommendations for economic reforms, aimed at paving the way to economic recovery, are actually implemented by the member states, according to a new study by the European Parliament.

Ahead of an EU summit that is expected to endorse the Commission’s 2014 country-specific recommendations, the study shows widespread reluctance among member states to implement what they have themselves agreed to.

The study looked at reforms in three areas – fiscal policies, macroeconomic imbalances and other policies such as labour market or financial stability. It then examines each country’s performance individually and lists the items in three categories – fully implemented (in green), serious work in progress (in yellow) and not implemented (in red).

The author of the study based his research on documents from the IMF, the OECD and the European Commission.

For the years 2011 and 2012, Belgium for instance showed a predominance of red, or recommendations that are not implemented. Those include reducing the budget deficit below 3% of GDP, shifting taxes from labour to “less growth-distortive taxes” and strengthening employment support for people with a migrant background.

Zsolt Darvas from the Brussels-based Bruegel think tank says he is “not surprised” by the results of the analysis.

“Countries typically follow what they think is the best to do. They consider what the Commission tells them, but if what the Commission wants is opposed domestically, it’s not surprising that countries are not interested in implementing them,” he told EurActiv.

Belgium’s wage indexation

Belgium’s wage indexation system is a case in point. The European Commission wants the system “reformed in consultation with the social partners”, saying it leads to wage inflation and pushes low-paid workers out of employment. But the move has been resisted by the socialist government of Elio Di Rupo, who sees the Commission move as an attempt to scrap the country’s social laws.

Although the EU executive deems that this specific measure undermines Belgian competitiveness, other interpretations have been heard, notably by the Belgian socialist party and among trade unions. According to a study by the European Trade union Institute (ETUI) published in March, Belgium is among the ten European countries where wages have not gone down during the crisis. For many, the Belgian automatic wage indexation is one of the factors “that helped avoid the worst”.

“If there’s a difference in opinion, the Commission proposes, the Council adopts, the Belgian government disagreed and that’s it,” Darvas commented. “After the release of the first draft of the proposal, many countries said that Brussels dictates them what to do and that instead they want to give orders to Brussels, there’s a general reluctance for taking recommendations from the Commission,” he said.

The European Semester: ineffective?

However, in the European Parliament, concerns are mounting that the lack of compliance with the Commission’s recommendations will in the end “weaken the economic governance and undermine economic stability in Europe,” a Parliament source said.

“If countries do not follow these recommendations, at some point we risk seeing serious problems on the deficit target, on the lack of competitiveness of the European Union. By not translating CSRs, these countries could at some point be sanctioned for not respecting the debt or deficit targets. Moreover, economic coordination is not only about debt and deficit. It’s also a way of making the Eurozone function as a common zone,” our source said, commenting the study.

But this view was not shared by the Bruegel expert:

“On fiscal policy, there’s a strong pressure for countries to comply because the stability and growth pact is now tough. On numerical targets, on how the budget should be adjusted, etc., countries will have to comply. On fiscal policy, it has to be better than on macroeconomic policies. I wouldn’t be surprised that, out of this study, the compliance for fiscal policies reaches 50-60%,” he said.

Darvas also stressed that the Commission tends to put more pressure on “weaker” countries such as Spain for the macroeconomic suggestions, and has much “more timid” requirements from a country like Germany.

The expert underlines that he had “no big expectations form the European Semester exercise” in general, drawing from different studies, including one drafted by Bruegel, which showed that national governments “do not consider much the Commission’s recommendations”.

“The whole exercise of the European Semester is overall useful because it triggers discussions, but if you look at how effective it can be, I have major questions whether it can really be so,” Darvas concluded.

Background

The country-specific recommendations are proposed by the European Commission early in June and subsequently submitted to the approval of EU heads of states and government.

They are the backbone of "European Semester" of economic policy coordination, which is itself central to the new economic governance structures put in place over the past three years to tackle the sovereign debt crisis.

The recommendations provide detailed pointers as to where each country should focus its economic reform efforts for the coming budget year.

Timeline

  • October 2014: European Parliament resolution on the implementation of the priorities of the European Semester

Further Reading